LME Wants Warehouses in China as Asia Growth Lifts Demand
The London Metal Exchange, the biggest marketplace for industrial metals that’s set to consider takeover offers next week, wants to expand its warehouse network into China, the largest user of base metals including copper.
“We would love to be able to put LME delivery points, LME warehouses into China, which we think would be a big benefit to the Chinese industry and LME,” Chief Executive Officer Martin Abbott said in a Bloomberg Television interview today. The LME is anticipating a number of approaches next week, Abbott said.
The exchange licenses a network of more than 600 storage sites around the world where users can deposit metals, with Asian locations in Japan, South Korea, Malaysia and Singapore. Metals demand in Asia will continue to expand, Abbott said.
“What’s going on in China, what’s going on in the whole of Asia, it’s a whole multi-generational, structural change,” said Abbott. “It’s not cyclical. So we’re not going to be fazed by short-term adjustments to forecasts.”
China’s growth slowed more than forecast last quarter, boosting concern that demand for commodities, including metals, may soften. Gross domestic product in the world’s second-biggest economy grew 8.1 percent from a year earlier after an 8.9 percent gain in the fourth quarter, according to data last month.
Three-month futures for copper, a metal typically taken as a gauge of economic activity, have gained 8.6 percent this year, and traded at $8,252 a ton at 1:49 p.m. in Singapore. The LMEX Index (LMEX), which tracks the performance of the six main base metals traded by the exchange, has gained 6 percent in 2012.
“People talk about slowing growth,” Abbott said in the interview. “But you know, we’re talking about slowing from double-digit growth to a mere 8 percent per year. But that’s still 8 percent more stuff than they used last year.”
The LME, which began trading tin and copper in 1877, will consider takeover offers made by May 7. The company may be valued at about $1.3 billion, according to Equity Research Desk, a hedge-fund adviser in Greenwich, Connecticut.
Hong Kong Exchanges & Clearing Ltd. (388), Asia’s largest bourse operator, said on April 30 it’s studying a bid. CME Group Inc., NYSE Euronext (NYX) and Intercontinental Exchange Inc. have made preliminary offers, three people with knowledge of the matter said in February. Abbott didn’t identify any would-be bidder.
“We anticipate hearing from a number of people,” said Abbott, who was appointed chief executive in 2006 and is in Singapore for the bourse’s first metals seminar in Asia. “Clearly someone who has an Asia lever provides a story but it’s not the only story in town.”
Abbott’s comment on establishing LME warehouses in China comes as total reserves of copper in the country are estimated to have risen to an all-time high, with producers saying that they intend to export metal into the London exchange’s network.
Standard Chartered Plc (STAN) said last month it was “astounded by how much copper is being stored in warehouses” in China, according to an April 26 report, estimating total stockpiles have climbed to about 1 million tons.
Jiangxi Copper Co. (358), China’s largest producer, and other makers and fabricators plan to ship copper out of China into nearby LME warehouses, Su Li, president of Jiangxi Copper International Trading Co., said on May 2.
Copper inventories in LME warehouses declined to 235,200 tons as of yesterday, the lowest level since 2008. Stockpiles monitored by the Shanghai Futures Exchange stood at 204,762 tons last week and have more than doubled this year.
The plan for local LME warehouses “is certainly good for the industry,” said Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, which represents producers and major state-owned trading firms. “This would help to lower logistics fees, and facilitate deliveries. However, regulators may have their own considerations.”
Overseas futures exchanges are prohibited from setting up warehouses in China for commodity-futures delivery before rules on the opening of China’s futures markets are issued, according to a 2008 rule from the China Securities Regulatory Commission.
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